Winners and losers

By Richard Hunter | 22 Aug, 2008 

There was another collective groan from the consumer over the last couple of days as the closure of an important Norwegian gas pipeline was announced. This particular pipeline, which should supply around 7.5bn cubic metres of gas this year (UK requirement around 90bn – source FT) is relatively small, and yet if it is closed down for the entire winter, it could have a disproportionate effect on an already tight supply. This understandably sent the wholesale prices of gas and electricity (which is tied to the use of gas because of its use in power generation) flying on the news.
 
The following day, both E.ON and Scottish & Southern Energy announced steep price increases for gas and power – in the case of SSE, of nearly 30% and 20% respectively. More inflationary pressure for the Monetary Policy Committee to consider.
 
The irony here is that these “unavoidable” occurrences tend to be bad news for consumers and yet good news for investors. Holders of utility shares over the last few years will have seen the sector transform from a dull, even dour sector into one which has added speculative takeover spice to its previous dependencies of strong, stable cashflows and (usually) punchy dividend yields.
 
On the other side of the coin, the retailing shares are under extreme pressure at the moment. Whether this be clothes or food, they are looking to limit the amount of price rises they are seeing in the manufacturing/processing areas being passed on to consumers, with the inevitable result that their already thin margins are being squeezed even further. Further price sales are inevitable as they jostle to retain customer momentum and market share.
 
Good news for consumers, bad news for investors.
 
Visitors to our website will, no doubt, fall into the camp of both consumer and investor. This can be used to their advantage, they can gauge consumer sentiment on the high street and marry this with information they can glean from the Share Research pages of our website to help them make good long term investment decisions.